Treasury denied Sh69 billion by reduced bank profits and increased employee reliefs

Treasury Cabinet Secretary Henry Rotich (left) and UN Representative Siddharth Chatterjee at a past event. [Standard]

Reduced banking profits and increased employee reliefs denied the Government Sh69 billion in taxes, forcing the Treasury to cut expenditure for the current financial year.

This saw the Kenya Revenue Authority miss its collection target by Sh172.4 billion in the financial year ending June 2018, with income tax contributing 40 per cent of the shortfall.

Treasury said in a new report that the depressed income tax was largely due to lower banking profits and expansion of the tax bands by 10 per cent. Expansion of tax bands saw monthly tax reliefs on salaries of low-income low earners increase from Sh1,162 to Sh1,280.

Interest rates

This meant that the Government could not touch their salaries. “Corporate income tax was below target largely due to lower banking profits explained in part by lower interest income attributed to the interest rate caps, expansion of the tax bands by 10 per cent resulted in a Pay As You Earn revenue shortfall of about Sh10.5 billion,” read the 2018 Budget Review and Outlook Paper.

Other economic sectors that posted unimpressive remittances included construction, energy, and agriculture. A prolonged electioneering could have also affected the construction sector while drought depressed harvests reducing the supply for food.

The revenue shortfall in the financial year 2017/18, has seen the Government come up with austerity measures as the State moves to plug a financing gap of Sh55 billion occasioned by the taxman’s poor performance.

MPs have passed a Supplementary Budget that saw the budgets for counties, digital literacy, last-mile connectivity, the supply of cheap cooking gas cylinders and road development funds chopped.

According to the report, all broad categories underperformed save for stamp duty, whose performance was above its revised target by Sh52 million. Another bad performer was VAT, which recorded a deviation of Sh21.2 billion. 

Other revenues were also below target except for the miscellaneous revenue which was above target by 1.3 billion.

This collection represented a growth of 6.2 per cent compared to the previous financial year 2016/17,” read the report dated September 19, 2018.